The terms of a mortgage call for a borrower to pay $4,800 in loan discount points. If the mortgage is $80,000, how many discount points have to be paid

Rationale

Six discount points must be paid on an $80,000 mortgage for a loan discount of $4,800.

A discount point is equal to 1% of the loan amount, and in this case, 6 points on an $80,000 mortgage amounts to $4,800, aligning perfectly with the terms of the mortgage.

A (3) YOUR ANSWER

If the borrower were to pay 3 discount points, that would equal 3% of the mortgage amount. Calculating this gives $80,000 × 0.03 = $2,400, which is significantly less than the required $4,800. Therefore, 3 points do not satisfy the mortgage terms.

B (4) YOUR ANSWER

Paying 4 discount points would amount to 4% of the mortgage, equating to $80,000 × 0.04 = $3,200. This amount still falls short of the $4,800 required, thus making 4 points an incorrect choice.

C (5) YOUR ANSWER

With 5 discount points, the total would be 5% of the mortgage amount, leading to $80,000 × 0.05 = $4,000. Although this is an increase from the previous options, it still does not meet the mortgage requirement of $4,800, rendering 5 points insufficient.

D (6) CORRECT

At 6 discount points, the calculation equates to 6% of the mortgage, yielding $80,000 × 0.06 = $4,800. This matches exactly with the mortgage's terms, confirming that 6 points is the correct answer.

Conclusion

In mortgage financing, discount points serve as a means to adjust the interest rate and upfront costs. In this scenario, the borrower is required to pay 6 points, translating to $4,800 on an $80,000 loan. Understanding the relationship between the percentage of points and the loan amount is key to determining the correct financial obligations in mortgage agreements.

The terms of a mortgage call for a borrower to pay $4,800 in loan discount points. If the mortgage is $80,000, how many discount points have to be paid

Six discount points must be paid on an $80,000 mortgage for a loan discount of $4,800.

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